Deregulation of fuel prices backfires on Moroccan government

Transportation workers went on strike to protest soaring fuel prices, which disrupted fruit and vegetable supplies, forcing an increase in food prices.
Sunday 02/12/2018
A view of a petrol station in Sidi Allal El Bahraoui in Morocco. (Reuters)
A little off-track. A view of a petrol station in Sidi Allal El Bahraoui in Morocco. (Reuters)

CASABLANCA - The deregulation of fuel costs backfired on the Moroccan government amid falling oil prices in the international market. Moroccans have been venting their anger as the cost of filling up a car tank has risen despite the price of a barrel of oil dropping approximately around 30% since October.

Transportation workers went on strike to protest soaring fuel prices, which disrupted fruit and vegetable supplies, forcing an increase in food prices.

The Moroccan government liberalised fuel prices in December 2015, leaving them to be determined by market forces.

“The liberalisation of fuel prices has had effects contrary to what the government sought. It allowed some companies to reap more profits and double their profit margins,” Moroccan Minister of General Affairs and Governance Lahcen Daoudi told the ruling Islamist party’s news website

However, the government’s approach revealed shortcomings that have prevented consumers from taking advantage of the benefits of liberalisation.

The timing of the government’s decision coincided with financial problems at the country’s sole oil refinery, La Samir, forcing it to cease operations in August 2015. La Samir produced about 200,000 barrels per day, two-thirds of Mo­rocco’s oil consumption, the equivalent of 60 days of stock.

Financial expert Lotfi Abourizk said the risk of stock shortage in the winter due to the bad weather could be even greater, which would encourage speculation and drive prices higher.

“To successfully liberalise prices for the benefit of consumers, the government must find a solution to the refinery problem as soon as possible,” said Abourizk.

However, the government was adamant to let La Samir go into liquidation. The Commercial Court of Casablanca ruled in favour of extending the liquidation process of the refinery to the property of several executives, including its CEO Sheikh Mohammed Hussein al-Amoudi.

“The government cannot, under any circumstances, intervene to save La Samir,” Morocco’s Minister of Energy, Mines and Sustainable Development Aziz Rebbah told the House of Councillors, insisting that the refinery was not a state property anymore after its privatisation.

To quell Moroccans’ anger, Daoudi explained that the General Affairs and Governance Department does not exclude caps on margins, without setting a deadline despite the Federation of Service Station Managers warning that the return to the former system would lead to half of the country’s service stations closing.

“If necessary, I will implement it immediately. It is just a circular to sign and not a decree of the head of government,” said Daoudi, adding that competition would be fiercer after the introduction of nine fuel distribution companies in the market.

Abourizk, however, said that, despite these new companies, the risk of an implicit or explicit agreement between them is not excluded because freedom has been given to fuel distribution companies to set prices according to the costs incurred and their marketing strategy.

“The possibility of not capping margins without setting a deadline does not seem to be a solution to the problem,” he said.

Distributors argue that the price at the pump would have dropped significantly if taxes were lower. Taxes represent around 46% of the final price of the litre of fuel in Morocco.

The state collects $130 million each month of Internal Consumption Tax on fuel, figures released by the treasury last year state, besides the value added tax on imports that oil companies pay to customs at the time of importing fuel, which is passed on through the pump price.

“In the absence of a real reform of the taxation of petroleum products, the liberalisation will never give the expected effects because fuel prices depend on 90% of the price of the oil barrel and taxes,” said Abourizk.

Jamal Zrikom, president of the Federation of Service Station Managers, said fuel prices would drop 50-55 Moroccan centimes ($0.053-$0.058).

“This drop will benefit consumers,” he said.